New York: Empire State Credit Unions Ride Out the Storm

While it is hard to put a final price tag on the cost of lives, homes and businesses throughout New York that were affected by Hurricane Sandy, federal funds will cover all of New York City’s costs, according to a recent report from the city’s Independent Budget Office.

About 90% of the total $6.3 billion in Sandy-related emergency and recovery package will be funneled through the Federal Emergency Management Agency. The remaining 10% will be covered with community development block grant funds.

The other good news for the Empire State is that 73% of its credit unions reported a positive return on assets as of Dec. 31, 2012. Statewide, New York’s credit unions earned an average ROA of 87 basis points, slightly higher than the national average of 86.

"New York credit unions have posted strong financial performance, exceeding national averages in key areas such as asset growth, loan growth and net worth for several years," said William Mellin, president/CEO of the Credit Union Association of New York. "First mortgages and member business lending have been significant driving forces behind the sustained loan growth."

Some credit unions in New York made it through the storm unscathed while others were battered, flooded and closed for days, making it difficult for members and credit union employees alike.

"This year has been particularly challenging for our membership in the aftermath of Hurricane Sandy," said Edward Paternostro, CEO of the $2 billion Nassau Educators FCU, located on Long Island. "Many of our members lost their homes and other property and many are still deep in the recovery process and looking to NEFCU for support."

As of Dec. 31, NEFCU’s 12-month loan growth was an impressive 14.93% and assets posted a 10.60% gain. After dipping below 9% in the second quarter, the credit union recovered net worth to close out 2012 with 9.22%.

Despite the recession, NEFCU has posted robust loan growth for years, with only a few quarters below 10% growth since 2007. In 2010, the credit union converted from a SEG-based charter to a community charter after growth slowed, but since that time market share and membership growth figures have improved drastically.

NEFCU’s ROA is below the peer average of 0.93%, with the credit union reporting 0.77% as of Dec. 31.

"We deliberately do not manage to a high ROA," Paternostro said. "Because we are a highly capitalized and efficient organization with low expense ratios, we have the ability to decrease our interest rate margins and offer our members the best rates in the Long Island marketplace. This has been a successful strategy for growth and one that we will continue in 2013."

NEFCU’s operating expenses to average assets was well below average as of Dec. 31, with the credit union reporting 2.25% compared to 3.19% reported by peers. Loan yield was below average at 4.6%, but a high 2.10% average investment yield boosted the credit union’s net interest margin to 2.75%, just 15 basis points below peer average. Member-leaning financials like low fee income, which was a little more than half of peer average as of Dec. 31, and higher than average cost of funds offset the efficiency gains. Net margin to average assets was 3.57% as of Dec. 31, compared to a 4.40% peer average.

Michael Bondanza, CEO of the $31 million St. Joseph’s Parish Buffalo FCU, weathered another storm—the recession—by specializing in loans for grown-up toys such as boats, campers and ATVs.

This small Buffalo, N.Y.-based credit union has about 4,000 members and only one branch. However, it bucked the struggling small credit union trend by reporting a 2012 year-end ROA of 1.87% and 34.21% loan growth.

"What we have done here at SJP is create a lending culture and a loan product with an easy application process, streamlined electronic closing and expedited funding mechanisms for area boat, recreational and RV dealers," Bondanza said. "Even though the economic recovery has been slow, people that are working have their downtime and want to have fun."

On the southeastern shore of Lake Ontario, the $50 million Oswego County FCU of Oswego, N.Y. boasts a positive ROA at 1.29%, much better than its peers who averaged 0.49%. What is OCFCU’s secret?

"Our ROA is product of number of factors," said CEO Bill Carhart. "Foremost, our loan-to-share ratio is 86%. Compare that to our peer LTS ratio of 60% and that gives us an increased opportunity to invest our excess shares into loans to our members and not into investment vehicles that yield a substantially lower rate of return."

Carhart said that approving loans makes members more inclined to increase their products. One popular product is a checking account that pays a remarkable 3.25% return.

"One of the main reasons (for consistent loan growth) is that we find a way to yes," he said. "My lenders strive to make as many loans as they can. We also operate in a blue-collar community where members live paycheck-to-paycheck and sometimes run into difficulties. With local banks in the area only lending to A and B consumers, we are more than happy to assist members who may have hit one of life’s roadblocks and missed a payment or two."

Hurricane Sandy also wreaked havoc on the Hudson River Valley where the $174 million Hudson River Community Credit Union is located. However six months later the Corinth, N.Y.-based institution is profitable with an ROA at 1.01% as of Dec. 31.

"The primary reason is a stronger margin driven by strong loan-to-share ratio of 82%, which is 24% stronger than peer, combined with strong fee income," said CEO Sue Commanda. "Other factors include operating efficiencies realized by staff cross selling, process automation and strong member loyalty."

Twelve-month loan growth was 4.56% as of Dec. 31. Commanda said the credit union decreased loan rates to boost loan growth; however, despite the drop in rates, Hudson River Community still bested peer average in net interest margin, reporting a 6.13% average loan yield, compared to 5.70% peer averages. A slightly higher that peer cost of funds ratio was offset by a slightly higher than peer investment yield and a robust fee income ratio of 2.19% of average assets.

The CEO said 48% of the credit union’s field of membership earns moderate- to low-incomes, and four of Hudson River Community’s five branches are located in low-income census tracts.

"We serve this demographic well," Commanda said. "And we are fortunate to be in an area that has good economic activity, such as the chip plant, and anticipate a good 2013 as a result."